Build-To-Rent – Achieving New Milestones

Build-To-Rent – Achieving New Milestones

Over £5 billion was invested in the UK Build-To-Rent (BTR) industry in the year leading up to Q3 2022. Savills reports that investment was up 75% year on year in only Q3. Due to its affordability and availability when finished, BTR properties have become highly sought after due to the rising rental demand and short supply of Buy-To-Let (BTL) homes available for rent. Currently, there are 76,800 completed homes in the BTR stock, and there are another 49,800 homes being built throughout the UK. We can anticipate supply and demand to match with the emergence of new BTR properties, which will naturally increase in monthly rental price due to organic growth. According to Cushman Wakefield, the renter pool will continued to grow from 3.6 million rented homes in 2010 to 4.4 million in 2021.

BTR is a modern take on the rental market that consists primarily of purpose-built residential properties designed purely for rent rather than sale. These are often professionally managed, rented for longer periods of time than BTL property, and include a variety of common facilities. The BTR industry is rising in popularity as mortgage rates continue to rise, with the Bank of England recently raising the base rate to 3.5%. According to Rightmove, London property has reached a new average price high of £718,731, making the property ladder increasingly expensive for many. BTR is revitalizing the rental market and becoming an attractive option for investors who have run out of options for getting on the property ladder.

Fundamentals

BTR is purposefully intended to fit the lifestyle of a prospective investor. The BTR homes themselves go above and beyond the demands of current living standards, going further than simply building a fantastic apartment. BTR locations are also a key selling point, with developers attempting to provide amenities such as public spaces with parks, gyms, and lounges in order to create small communities within their developments, hence increasing the appeal of BTR houses. Renters who are tired of the unpredictability of typical BTL renting tenancies would appreciate quality houses and long-term security. A BTR property's architectural design is a crucial selling element for tenants. Since the pandemic began, some BTR projects have lately combined work-from-home pods or rooms with the property, demonstrating the efficient use of space.

BTR's tenant-oriented ideology is visible in its development, design, sustainability, and management. It is a great long-term investment option for investors and has proven to be resistant to economic constraints. BTR provides a variety of deal structures that are adaptable to different types of investors:

  • Forward fund:

The cost of developing the BTR scheme must be provided to the developers by the investors as the project proceeds under this agreement structure. These are typically paid in three stages: contract completion, cost reimbursement when the scheme is constructed, and profit payment once the scheme is completed.

  • Joint Venture:

This often entails an agreement between two or more business entities to split the expenses, ownership, control, risk, and return on investment of the BTR plan they are developing. Each party can pool their resources for this venture and contribute their expertise where it is needed.

  • Co-Investment:

This is a type of equity financing in which investors' ownership stake in the company is limited to the proportion of their investment. The BTR project is managed by a main company or firm, with the other investors making up the minority investment.

Management and Longevity

Management is the primary motivator for any investor in all rental sectors. Tenant satisfaction is always linked to the level of management provided. When it comes to BTR, most investors put a lot of money on quality staffing, maintenance, and security. Many BTL landlords disregard defects or technical breakdowns in their rented out properties, resulting in a terrible tenant experience. A lack of security within the property often causes renters to be concerned about their safety. Any housing development is expected to provide a high level of security; the bare minimum is unacceptable in this case. BTR projects takes pride in providing renters with cutting-edge home security.

The success of a BTR plan depends on how long it lasts because build-to-rent is an investment that must be made over the long term. BTR's operations include Environmental, Social, and Corporate Governance (ESG) practises. A sustainable approach to the development and operation of BTR contributes tremendously to its future value retention, which keeps renters satisfied and maximises the investor's investment. According to a NMHC survey, the current generation of renters prioritises sustainable housing over affordability. Renters are willing to spend an extra £32.64 per month to reside in a green building certified property.

Outlook

BTR has established a strong position in the property sector and is expected to skyrocket in the next years. Following a 60% increase since 2019, BTR is expected to double in value from £56 billion to £102 billion by 2028, according to Knight Frank. This indicates an increase of 82%. North America was the largest source of overseas investment in the UK BTR sector, accounting for 28% of total capital invested. This demonstrates the interest and potential of the BTR scheme because it warrants global interest, which is unusual in the BTL market. UK firms invested 42% of capital.

With 57,000 units currently under construction and 61,000 with complete development permission, the BTR sector seems destined to achieve more property market milestones in the long term. According to Property Week, the UK's population is expected to grow by 1.8 million people, which would increase housing need even more, and BTR developments aim to meet that demand. According to the British Property Foundation (BPF), by 2032, 8% of UK homes for rent will be purpose constructed, up from 1.5% currently. All indications point to BTR skyrocketing in the next decade, giving investors the luxury of getting in early to maximise their gains by the time BTR is a property market staple. 2023 is expected to be another significant year for BTR, and it will continue to climb over time.

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Novyy is a Community Investing Platform that enables individuals to invest in UK Buy-To-Let, Leading Real Estate Private Equity Funds, and Premium Homes across Europe with as little as £10,000. Novyy users enjoy seamless digital investing like never before, in opportunities that were earlier unavailable to most individuals. This piece should not be construed as tax advice. Please refer to your tax advisor before making any decisions on owning properties through Limited Companies.